FTC’s AI Washing Crackdown Hits Several Businesses

The Federal Trade Commission (FTC) on Wednesday announced fines and lawsuits for multiple companies the commission says used artificial intelligence to power deceptive schemes either through AI hype or selling AI technology that can be used in deceptive or unfair ways.

Five companies -- including DoNotPay, Ascend Ecom, Ecommerce Empire Builders, Rytr, and FBA Machine -- were swept up in FTC’s Operation AI Comply, targeting businesses using or promoting AI in deceptive ways. The FTC charges included a company it says promoted an AI tool that enabled customers to create fake reviews, a company that claimed to sell “AI lawyer” services, and multiple companies claiming they could use AI to help consumers make money through online store fronts.

“Using AI tools to trick, mislead, or defraud people is illegal,” FTC Chair Lina M. Khan said in a release. “The FTC’s enforcement actions make clear that there is no AI exemption from the laws on the books. By cracking down on unfair or deceptive practices in these markets, FTC is ensuring that honest businesses and innovators can get a fair shot and consumers are being protected.”

“AI Washing,” or the exaggeration or deception about a company’s AI capabilities has become a hot topic since generative AI has exploded in popularity over the last couple of years.

Related:Did GenAI Expectations Just Crash Into Cold Economic Reality?

The Case of the Robot Lawyer

The FTC says DoNotPay claimed to offer the “world’s first robot lawyer,” but the product “did not live up to its lofty claims that the service could substitute for the expertise of a human lawyer.” The company offered a service that would check a small business website for federal and state law violations that could cost the business $125,000 in legal fees.

The FTC’s complaint said this service was not effective. The FTC fined DoNotPay $193,000 and required the company to warn customers about the limitations of the law-related features and prohibits the company from making claims about its ability to substitute professional services.

In a joint statement, FTC Commissioner Melissa Holyoak and Khan said the action against DoNotPay will play an important role in preventing deceptive AI business practices.

“For consumers to benefit from AI (as with any technology), they must be able to trust the claims that companies make about its capabilities,” the commissioners wrote. “Importantly, this settlement does not suggest that consumers should use expensive professional services, or that companies should avoid offering innovated products that reduce the need for high-priced lawyers. The misdeeds of a few bad apples shouldn’t dampen pro-consumer innovation.”

Related:FTC Prescribes Ban on Rite Aid’s AI Facial Recognition Use

Lawsuits Halt Activity

The FTC also filed complaints against Ascend Ecom, Ecommerce Builders, Rytr, and FBA Machine that were followed by federal court orders to halt the alleged illegal activity involving AI. 

The FTC said Ascend Ecom used false promises of “cutting edge” AI-powered tools that would help consumers quickly earn thousands of dollars per month. The FTC said the scheme defrauded consumers out of at least $25 million collectively. The other companies, according to FTC, similarly used false claims about AI tools.

Wednesday’s announcement adds to the FTC’s AI efforts, which have also targeted Rite Aid, Career Step, CRI Genetics and more.